Growth prospects in SA and across the continent have deteriorated, which threatens to push millions of Africans into poverty and exacerbate social unrest amid acute risks of food insecurity, the UN Conference of Trade and Development (Unctad) warned in a new report published Monday.
Unctad said the sharp economic slowdown reflected several new challenges across the continent and the world. These include high international food and fuel prices, financial shocks owing to the stronger-than-anticipated tightening of monetary policy in advanced economies and acute risks of food insecurity in many parts of Africa.
Unctad called for advanced economies to change course in their monetary and fiscal policies — which broadly influences economies around the world — to avoid inflicting worse damage than the financial crisis in 2008 and the Covid-19 shock in 2020. The cascading crises resulting from the pandemic combined with debt distress, inflation, climate change and the war in Ukraine have already turned a global slowdown into a downturn, the trade body said.
The report highlighted the weak growth trajectory of Africa’s three largest economies, Nigeria, Egypt and SA, which together account for roughly 60% of the continent’s GDP.
Growth in the SA economy — mainly driven by the services, manufacturing and mining sectors — has been slow since 2011, when it recorded 3.3%. Since then, growth has generally been trending downward to below 2% from 2014 — pushing the unemployment, poverty and inequality levels to record highs.
The latest trade and development report by the Unctad, a body formed in 1964 to promote the interests of developing states in world trade, highlights that in SA, growth in the first quarter of 2022 surprised on the upside (+1.7%), before contracting 0.7% in the second quarter, with flooding in the southeast of the country.
While private investment has strengthened as a result of the recovery, public sector investment remains weak. Household spending — which had continued to expand in early 2022 — contracted in the second quarter and is expected to remain subdued until the end of 2022 owing to higher inflation, lower asset prices and rising interest rates, the trade body said.
Meanwhile, tourism, hospitality and construction should see stronger recovery as the year progresses. Other headwinds include subdued investment and business sentiment, elevated prices for food and key imported inputs, high indebtedness of the middle class and increased volatility of capital flows, which compound longer-term challenges, such as high unemployment and inequality. Consequently, the economy is expected to show a weaker growth rate of 1.4% in 2022.
Broadly, Africa’s economic activity is expected to expand by a moderate 2.7% in 2022 and 2.4% in 2023, following a rebound of 5.1% in 2021, the Unctad said. As a result, an additional 58-million Africans will fall into extreme poverty in 2022, adding to the 55-million already pushed into extreme poverty by the Covid-19 pandemic, the report says.
Elsewhere on the continent, tourism-reliant economies have benefited from the return of international visitors while fuel exporters have enjoyed favourable terms of trade. Yet, the economic situation remains difficult in most of the continent.
Zambia has agreed to a three-year programme with the International Monetary Fund (IMF) and Ghana and Tunisia are in rescue talks. At the end of May 2022, the IMF and the World Bank considered 16 low-income African countries to be at high risk of debt distress while seven countries were already under such distress.
Meanwhile, the UN Food and Agriculture Organisation estimates that 33 African countries need external assistance for food, while acute food insecurity is likely to worsen in the next months in 18 of these economies.
“Soaring fertiliser prices owing to the war in Ukraine threaten to reduce food production and deepen the food crisis, with smallholder farmers likely to be worst hit,” said Rebeca Grynspan Unctad’s secretary-general. The situation is especially dire in parts of East and West Africa due to shortfalls in agricultural production, multiple seasons of drought conditions and persisting conflicts.
Consumer and producer price indices have been on the rise across the continent, affecting especially the most vulnerable households. In several countries, both indices reached double-digit figures. Overall, high prices are likely to exacerbate social unrests across the continent, the Unctad said.
phakathib@businesslive.co.za
